By Ronn Espy
There are a wealth of tax deduction myths, rumors and plain old wives tales during every tax season. Many opt not to get professional tax preparation help and file their own taxes based on misinformation, only to regret it later when the IRS comes calling. It is sobering of find out they filed using mythical deductions and write offs. Here are 5 big ones to look out for:
#1 – My Medical Expenses Are Tax Deductible.
If they exceed 7.5% of your adjusted gross income (AGI)Medical expenses may be tax deductible. However there is a catch, which is that you can ONLY deduct the amount of out of pocket expenses that are greater than the 7.5% threshold. A lot of medical expenses will be necessary to make this work.
Be advised: If medical expenses are reimbursable, they are not deductible even if you did not get reimbursed.
#2 – I must use money from my home sale to buy another residence.
In the old days that was partially true but in 1997, home-sale tax law changed. If the home you sold was your principal residence for at least 2 out of the last 5 years, then you can exclude from tax up to $250,000 in gain (and $500,000 on a joint tax return). Consult a tax professional.
#3 – My mortgage interest will reduce my tax bill
Usually this one is true but not in all cases. To claim a tax deduction for your home loan’s interest, you must itemize and come up with a total that exceeds your standard amount. Those at the end of a mortgage loan term are paying more principal than interest thus don’t get much, if any break in taxes because the interest paid is so little.
#4 – I Have to File a Joint Return Now that I’m Married
This is false. You always have the option of filing “Married Filing Separately.” Just be cognizant that this choice will normally result in you paying more in taxes. But this can be to you and your spouses advantage.
An example, if one spouse has considerable medical or miscellaneous deductions, those items might never be used (with a combined income) as a deduction if they do not meet the 7.5% and 2% minimum requirements respectively. Review your individual cases and see if filing separately might allow you to then take advantage of those tax deductions. Ask a tax preparation professional. Incidentally, you can change your filing status annually.
#5 – My Diet Program Is Tax Deductible
If certain requirements are met a weight loss program may qualify as a tax deductible medical expense.
1) Your physician must have prescribed it! 2) It is intended to treat a particular disease. Obesity IS considered a disease, so it might count if you are legitimately obese. If you’re not obese but need to lose weight to lower your blood pressure, that might make the program a tax deductible expense. Word of caution: the overall cost still has to meet the 7.5% requirement as indicated above.
Seeking qualified tax preparation help is a wise decision when it involves filing your taxes and the eligible tax deductions you will qualify for. Tax return preparers, CPA’s or Tax Attorneys are available online or off to advise you on tax deductions. Use their tax preparation help to seperate fact from fiction.